Financial risks faced by cohabiting couples

Legal changes are being considered to allow unmarried couples to establish legal partnership rights. Picture: Shutterstock

According to the 2011 Census, 8.6% of South Africans live in a domestic partnership and over 60% of couples live together before getting married. Unfortunately, there is a common misperception that common law marriages are recognised by our law and that cohabiting partners have legal status. The truth, however, is that there is no such thing as a ‘common law spouse’ or ‘common law marriage’ in this country.

Legal framework

Cohabitation is not a recognised legal relationship and has confers no legal status. Regardless of how long a couple has been living together or whether they have children together, their relationship has no legal standing in South African law, unless they can prove what is referred to as a universal partnership*. The fact that partners living together have no legal duties towards each other and no reciprocal duty of support – something which can leave couples financially exposed in the event of death or dissolution of the relationship. Since the legalisation of same-sex marriages in 2005, the court has made it clear that marriage is available to anyone who wants it, and if a couple chooses not to marry, they are choosing to exclude themselves from the legal consequences of marriage.

Having said that, some areas of our law are applicable to cohabiting couples, such as the Domestic Violence Act. Most medical schemes recognise a cohabiting partner as a financial dependant and will permit them to be added to the main member’s membership. Cohabiting partners can nominate each other as beneficiaries on their respective life policies, and a domestic partner may receive pension fund benefits as a nominee if she qualifies as a dependant under the retirement fund rules. Most importantly, as both biological parents are responsible for the maintenance of their children, both partners have obligations in terms of the Maintenance Act to provide for their children.

The two greatest areas of financial risk facing couples in a domestic partnership are (a) the death of a partner and (b) the dissolution of the relationship. If a partner dies without a will, the surviving partner has no right of inheritance in terms of the Intestate Succession Act. In addition, she cannot rely on the provisions of the Maintenance of Surviving Spouse Act and she will have no enforceable right to claim spousal maintenance. If the relationship comes to an end, cohabiting partners have very little recourse in terms of the divisions of assets.

The proposed Domestic Partnership Bill

With more and more couples choosing to live together rather than get married, legal changes are being considered to allow unmarried couples to establish legal partnership rights. In this regard, the Domestic Partnership Bill was proposed to Parliament in 2008 although it is yet to become law. In terms of this Bill, couples will be able to register their relationship as a domestic partnership and in doing so will create similar rights and responsibilities as a marriage union. However, until this legislation is adopted, cohabiting partners have very few rights and should take appropriate steps to protect themselves financially.

How to protect yourself

To protect their financial futures, cohabiting couples should consider the following:

Draft a cohabitation agreement

Couples living together should draft and sign a cohabitation agreement, sometimes also referred to as a domestic partnership agreement. This agreement should set out regulations regarding the couple’s finances, property, assets, pets and can even include maintenance. If reneged upon, the courts can be approached for assistance and legal recourse.

If the couple owns immoveable property, the agreement should specify what should happen with the property should the relationship come to an end, which partners is entitled to remain in the home, who is responsible for bond repayments, and an agreed method of valuation. This can be particularly complicated especially if the house is owned by one partner while the other partner has contributed to improvement costs over the years. The contract can even cover make provision for ongoing maintenance to be paid by one partner to the other if the relationship ends. Other factors to be considered when drafting the agreement are things such as medical aid membership, gap cover, vehicles, debt, joint bank accounts and lease agreements.

In the absence of a signed agreement, the partners have very little legal recourse and leave themselves unnecessarily financially exposed.

Draft a will

To ensure financial protection in the event of the death of a cohabiting partner, it is advisable for each partner to draft a last will and testament. It is important to specifically name your life partner in your will and to identify exactly which assets you would like to bequeath to her. Through a will, partners are able to set up trusts, bequeath moveable or immoveable property, and make adequate financial provision for each other in the event of death.

Bear in mind that cohabiting couples can name each other as beneficiaries on their life policies and may nominate each other as dependants on their retirement funds, although the pay out of retirement fund benefits is subject to the retirement fund rules and trustee discretion.

*In certain instances, courts have recognised the implied or express existence of universal partnerships, although this is difficult to prove, expensive to litigate and involves an onerous list of criteria.

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Crue Invest (Pty) Ltd

Eric holds BA LLB LLM degrees specialisting in Tax, and is an admitted attorney. He is a Certified Financial Planning® professional and holds an Advanced Graduate Diploma in Financial Planning. Eric is a director and shareholder at Cr... more

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